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Renting is a costly mistake

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Yes I know what you’re thinking that as a realtor my advice will always be to buy vs rent, however owning something just makes sense and one only need to do the math to discover that owning something makes sense.  So let’s do some math, if you were to finance a mortgage of $800,000 using a variable rate of 2% it would cost you $3,388 per month.  If the rate goes up to 3%, it will cost you $3,786 per month. At 4%, the cost will be $4,208 per month.  For a family looking at an $800,000 mortgage, they would most likely rent a place that would cost them at least $3K, $4K or $5K per month meaning that they’ll be wasting between $36,000 – $60,000 per year instead of putting that money towards paying down principal & interest. I’m not sure why anyone would want to do that. By the time they decide to get back into the buying market, either the prices will be higher or the interest rates will be higher thereby costing them more per month to own a home no matter how you slice it.  Even if you think the market will go down, it won’t go down by more than 5% and inevitably, interest rates will rise meaning it will simply cost you more to own the same property even if prices stay the same.    I think that everyone should consider your buying instead of renting. I think renting will only cost you money in the long run. Imagine being retired and being at the mercy of paying rent? Now imagine being retired and having a home that’s fully paid off. The choice is yours and I know which one I’d choose.    

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So you want to rent for awhile, eh?

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So you want to rent for awhile, eh? I hear it all the time. People who think they can rent for awhile and wait for the market to cool off so they can buy something later when the market cools. Unfortunately none of us has a crystal ball and none of us can time the market perfectly. Yet it amazes me that many people think they can do it all the time.  No one would claim to be able to time the stock market so I’m not sure why they think they can time the real estate market.  For years we’ve heard many well educated economists predict a market crash. Yet year after year, their prediction doesn’t happen. I’m not saying that the market will only go up because we know that all markets are cyclical. But the most educated economists are continually predicting the real estate market incorrectly. What makes it worse is when they suck the general public into believing that they can time the market and rent for awhile to take advantage of an impending softening of the market.  What usually ends up happening is that they are just delaying the inevitable home purchase and the market starts to run away from them. So now they can afford even less house than they could before. So by the time they have rented for awhile, they now have to accept something smaller than what they were first looking for. I’ve seen it time and time again, that people who wait to see if the market falls end up staying out of the market and wasting more money renting. When they buy into the market, they buy in at a higher price and have lost out on the appreciation they could have had over the years. As Will Rogers once said “Don’t wait to buy land. Buy land and wait”. Real estate is something that does appreciate over the long run so getting in as early as you can makes sense. Renting to wait out the market will only cost you money.

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Beware of Short Term Renters in Your Condo Buildings

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  When I travel I love finding great places to stay on airbnb.com or vrbo.com. I’ve never stopped to think of how this short term rental phenomenon is impacting the condos in downtown Toronto. I am the president of my condo corporation and we’ve recently discovered a few units in our condo building were being rented through short term rental sites. In the condo declaration it clearly states that rental terms shorter than 6 months are not permitted. Now most people don’t read the condo declaration regularly to be concerned with all of the rules. However once the condo corporation becomes aware of the problem a terse letter will be sent to the owner/landlord in question to make them aware of the rules. If the first or second letters don’t change their behaviour than the condo corporation will have no choice but to get their lawyers.  The resulting legal bills will be charged back to the offending unit. Short-term rentals are becoming more of a problem in the city. I was recently out with clients who were complaining about the influx of new people they had started seeing in their west end condo building. I suggested that they search their address on a few short term rental web sites. Sure enough they went home and did exactly that and were shocked to learn that some of the units in their building were on kijiji being advertised as a short term rental. The short-term rental problem is affecting many of the condos in our city. These vacation renters simply do not care as much about the welfare of the building so it’s important that owners be diligent in their efforts to root out the units being used for short term rentals in their buildings. So, if you live a condo building, spend some time searching on the short term rental sites to see if any of the units in your building are being rented out, then inform your property manager and board so they can start resolving the issue.

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Are you a good neighbour?

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I hope that you answered yes but what does being a good neighbour really mean? Do you help your neighbour shovel snow if necessary? Are you responsive to their concerns if you share a wall, fence etc?  Do you waive hello or keep to yourself?  Do you keep the exterior of your house tidy so that the value of your neighbour’s home is maintained?  I feel very lucky to have some great neighbours who help each other out when necessary.    When searching for a home, it’s important to notice the neighbour’s properties. Is their garbage on the porch? Does the roof look like it needs to be done?  You might be able to choose the house that you purchase but you can’t change your neighbours so make sure the neighbours on either side of the house keep the exteriors tidy. Recently I noticed a house 2 doors down from a home I was showing, had a junkyard in the backyard.  It was an immediate turn off to my client. According to the Chicago-based Appraisal Institute, property values can be reduced by as much as 10% by having a lousy neighbour.  According to the institute being a bad neighbour can be defined as annoying pets, unkempt yards, loud music, dangerous trees, or poorly maintained exteriors.  Once you have a bad neighbour, they can be very difficult to get rid of so make sure that when you are house hunting, you take a look around at who your neighbours are.  And once you move into your home, make sure that you act as a good neighbour.  If you are putting your house on the market, contact me & consider asking your neighbours for their cooperation perhaps by offering them a bottle of wine to make sure their dog isn’t barking in the yard.

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Would You Prefer An Auction Over A Bidding War?

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There has been much talk lately of changing the bidding war scenario of blind offers on houses to an auction format where everyone can see what the offers are. I disagree with the using the auction mentality to purchase a house. I have noticed a few houses in Toronto have gone the auction route. Some have met with success and others have not. The reason why I am against open bidding for a house is simple. I feel that with an auction for a house in Toronto, people would get carried away and allow their ego to take over and pay more for the house than they should. When people see someone raising a paddle to pay a certain amount for a house, I believe their ego will get the better of them and they will start to say things in their heads like, “well if that person can pay that much for the house, well so can I”. Time for rationale thought will disappear. When a buyer is in a blind bidding war scenario, they may not know the price but they aren’t sitting in the middle of the action and they don’t have to make a 30 second decision to spend more money. They can sit in a separate room with a spouse/friend/parent and make a rationale decision. They can take the time to think about how much they can truly afford and if they really want to purchase this house. In an auction scenario, the ego takes over. The next day, the lucky bidder may have buyer’s remorse. As much as buyers are upset with the blind bidding war process, the open bidding environment of an auction, will create a volatile situation where buyers pay more for property then they really should. Yes buyers do need protection from themselves. Maybe they will come to realize that bidding wars aren’t so bad.

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Winning A Bidding War

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When there is a huge demand for a house, there is usually a bidding war over the property.  The bidding war occurs when either a specific date and time are identified or when 2 or more offers are received on the same property.  Many buyers become discouraged after losing too many bidding wars.  Buyers shouldn’t get discouraged; they just need to think more strategically.  Bidding wars do test a buyers’ patience.  So how can a buyer win a bidding war?  Become a Bully – I know in the age kids being cyber-bullied this sounds bad, but it’s not as bad as it sounds.  Delivering a pre-emptive offer, commonly known as a bully offer within 24 hours of the property coming onto the market.  This way most of your competition, and their agents, haven’t even had a chance to see the property yet.  Utilize the element of surprise here.  It goes without saying that a bully offer should not have any conditions such as financing or home inspection included.  And in most cases, the offer should come in at least $75,000 over the asking price to make the sellers consider taking your offer seriously.Doing a bully offer requires stealth preparation and the buyer’s really need to have their ducks in a row.  They must have seen at least 5 other properties to determine that this property is worth the extra effort.  They (and their agent) must be watching the new listings and go out and see them immediately after they have been uploaded to the MLS.  Finally the buyers must be comfortable buying a house without a home inspection or finance condition. Bid High – On offer night present your highest and best offer.  Never assume that the sellers will come back and ask for a second round of offers.  I always tell clients, when I contact you the next day after you have lost the house and I tell you what the eventual sale price is, what price will not piss you off.  As in when you hear the eventual sale price, your reaction should not be, “Oh crap, we would have offered that amount”.  A buyers reaction after they hear the sale price should be, “we would never have offered that amount”.  So they can feel somewhat better that they lost the house.Buyers think they are saving money when they don’t bid as high as they can right out of the gate.  Let me paint two scenarios for you:Scenario # 1 – House A is listed at $599,000.  Buyer A offers $650,000, Buyer B offers $675,000, Buyers C offers $710,000.  Buyer C then gets the house because their offer is very clearly above the others. Scenario # 2 – House A is still offered at $599,000. Buyer A offers $650,000, Buyer B offers $675,000, and Buyer C offers $685,000.  The offers are now so close together the Seller sends all offers back in the hopes of finding a clear winner.  On the second round of offers, Buyer A offers $680,000, Buyer B offers $705,000, Buyer C offers $725,000.  The sellers now choose Buyer C because the offer is significantly higher than the other offers.  In scenario 1, Buyer C came out swinging and blew the competition away so Buyer C won the house and paid $710,000.  In scenario 2, Buyer C chose to go in with a conservative offer.  Because it didn`t blow the competition out of the water, Buyer C then had to pay even more for the house as it went into a second round.  This scenario plays out in every multiple offer situation.  The only way to win the offer is to pay the absolute most that you can to blow the competition out of the way.  There is one caution however, you don`t want to bid so much for the house that your mortgage lender`s appraiser doesn`t appraise the value of the house. You may think that I have convinced you to spend too much on the house but think about this real-life situation that happened to me.  There was a great house in 2007 in the Yonge & Eglinton area that I wanted.  I was one of 17 bidders.  The house was listed at $529,000 and I lost out to a bidder who was willing to pay $641,000 for the house.  Well of course I went home that night thinking, that guy was crazy to pay so much for the house.  In 2008, I finally found another house to purchase, on the same street.  I paid $639,000 for my house.  A few months ago, the house that I had offered on in 2007 came back on the market.  It was now listed for $849,000 and it looked as great as ever.  After multiple offers, it sold for $1,051,000.  And to think back in 2007, I thought the buyer of that house was crazy.  He wasn’t crazy and has had the last laugh as he made a 64% profit or $410,000 in seven years.  As long as you plan on staying in the house at least 5 years, paying a little too much for the house won’t matter.  At the end of the day, you will have a great place to live.  Happy house hunting!!

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How can online shopping decrease the value of your home?

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Recently Staples Inc. reported that it would be closing 12% of its stores meaning a loss of nearly 225 stores in Canada & the United States.  It’s CEO stated that with the increase of online shopping, they wouldn’t need as many stores.  This same issue has plagued many retailers and put many people out of work.  Earlier this year, Indigo Books closed down their location at the Runnymede Theatre and Heather Reisman, the company’s CEO said,”… that many customers browse in-store, only to go home to purchase the items they want online at the cheapest possible price.”  Indigo also recently closed down their location at Richmond & John.  I think this is the sad fate of many of our retailers as online shopping continues to grow.  Although online shopping is not the only reason for the closures impacting many retailers, it is a part of the problem.  I’ve always seen retailers like Indigo not only as great places to shop but great places for residents in communities to gather.  I remember noticing this past Christmas during the blackouts, many families without power in Indigo stores, reading books and enjoying each other’s company.  With the closing of these stores, where will people gather?  With many stores closing, we will begin to lose our streetscape which is what makes our neighborhoods great.  When most people purchase a home the first thing they mention is the need to be close to shops, restaurants, & cafes.  The retailers provide a vibrancy that every neighbourhood needs.  If more and more of these retailers close their doors, our neighbourhoods won’t seem as attractive and it will affect the values of our homes.  In addition to losing our streetscape, the loss of jobs from these closures will affect many in our communities.  Remember all of the part-time jobs you held in highschool & university?  Many of our youth are directly impacted by the closing of these retailers.  It’s ironic that young people who are most likely to shop online are the ones most directly affected by the lack of jobs.   Many of my friends consider me slow to adapt to new technologies but sometimes I think we need to consider their future impact.  So the next time you shop online, consider shopping at one of your local retailers to help ensure the vibrancy of your neighbourhood and your property values.  

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Lack of liquidity in real estate is a good thing

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I love my debates with the financial types about the merits of investing in real estate.  They only seem to have eyes for the stock market.  The debate inevitably turns to, real estate is illiquid and is therefore bad.  With the stock market one can sell whenever they want to, proving it’s liquidity.  However there is a flaw with this logic.  In 2008, when the market crashed, many people sold many of the stocks within their portfolios.  This only served to realize their losses.  Prior to selling their stock, the loss was strictly on paper.  Once they sold, that loss was very real with no chance to recoup those losses.  Now what if those same people kept their money in the market and didn’t sell?  Six years later and the stock market is doing very well and most of those stocks have increased markedly.  Had they not sold, they could take advantage of those profits now.  The fact that the stock market is liquid made it too easy for people to sell and realize their losses.  Liquidity hurts the stock market investors.  If we look at real estate during the recessionary period in the early 1990’s when the real estate market was down.  Some sold their homes and accepted the loss.  Others held onto their homes & didn’t take the loss which was only on paper.  Many years later, all of those home values have increased substantially proving that illiquidity is a good thing.  If the stock market was more illiquid, it would help those who always sell too quickly, realize more profits instead of loss.  So next time you hear someone tell you that the illiquidity of the real estate market is a bad thing, please tell them to think again.

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Great Restaurants = Great Real Estate

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I love trying out the best restaurants be they in Toronto or anywhere else in the world.  I recently went to Girona, Spain to visit 2013’s best restaurant in the world, El Celler de Can Roca.  However, I’ve recently noticed a trend when it comes to real estate & restaurants in Toronto.  All of the areas that seem to have the biggest cluster of the newest and best restaurants also seem to be the same places to buy great real estate.    Let’s take Leslieville for example, it has been a mecca of great dining for years now with great restaurants such as Table 17 & Ruby Watchco.  After years of fostering the city’s best dining establishments, the real estate values in Leslieville have now hit the million dollar mark.  Leslieville is no longer the locale of inexpensive houses that drove people east of the city.  It’s now one of many pricey Toronto pockets with neighbourhoods lined with expensive strollers.   Example #2 – The Junction.  It was rumoured to be an up and coming area for the last ten years.  Even the New York Times reported it as up and coming.  Well it has finally happened as Starbucks has opened-the true sign of an up & coming area- and the Junction has finally hit its stride.  It has many of the city’s best restaurants including Playa Cabana Cantina, & the Farmhouse Tavern.  The values in the Junction have definitely increased and the average semi-detached sells for close to $700,000.    Example #3- Parkdale.  All of the hottest new restaurants are currently along King St West in Parkdale.  Chantecler, Electric Mud BBQ & Grand Electric are all the rage on Toronto Life top-ten restaurant lists.  Peter Freed – the developer who built up King West – recently predicted that Parkdale would be one of the next neighbourhoods to see an increase in value.  There is a lot of potential for Parkdale north of King Street where there are a number of large beautiful Victorian homes which have been neglected over the years.  These houses are already highly priced because they tend to be larger than the average Toronto home however given their proximity to the city and the great restaurants in the area, its only a matter of time before the bay street crowd decides to make Parkdale their next home.  So if you are ever trying to figure out where the next up and coming area will be in our city?  Follow your palette to the best restaurants Toronto has to offer.

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Getting Your Affairs In Order

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I still remember when I purchased my first condo, well over 13 years ago.  Once I took possession of it my mother was all over me about doing a will.  But my mother was right to make me do it.  Sometimes mothers do know best.  Of course when you are young, you never think about things like a will.  There are many older people who don’t think of doing wills either.  I recently had the experience of learning that a terminally ill relative her 70’s, didn’t have a will.  I think it’s extremely important for those who own property whether they are married or single to have a will drawn up by a lawyer.  I am always astounded when I ask friends who tell me that they don’t have a will yet.  Why not?  Having a will should be considered part of your financial plans.  You have an RRSP and/or a TFSA?  Ideally, a will should be included in the mix so that when you depart, your financial affairs are looked after.  It’s such a simple thing yet overlooked my many, many people.   Stats show that 56% of Canadians, 50% of Americans & 60% of Britains do not have a will.  Does that mean the governments of the future will benefit from this?  Do people really think that they will escape our normal life cycle?  We all know that some day we will perish.  I know it’s a gruesome thought that people seldom want to think about but we must all plan for that eventuality someday by being prepared. As Benjamin Franklin’s famous quote states, ”In this world, nothing can be said to be certain except death & taxes.”

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